CNX Gas: Delaware Court Clarifies Standard Governing Controlling Stockholder Two-Step Freeze-out Transactions
By Kevin C. Logue & Carl Sanchez
On May 25, 2010, in In re CNX Gas Corporation Shareholders Litigation, Vice Chancellor Laster of the Delaware Court of Chancery endorsed a unified standard for reviewing controlling stockholder merger and two-step (tender offer followed by a short-form merger) freeze-out transactions, and arguably raised the bar for obtaining business judgment review in the context of a two-step tender offer by a controlling stockholder. Importantly, the Court held that a controlling stockholder two-step tender offer would be subject to business judgment review if the transaction is (i) negotiated and recommended by a special committee of independent directors, and (ii) conditioned on the tender of a majority of the shares held by unaffiliated stockholders. The CNX Gas decision provides much needed guidance to practitioners and controlling stockholders in structuring two-step tender offers in order to obtain the less stringent business judgment standard of review.